HR Compliance

Earned Income Tax Credit Notification a Must

By

Robert Barclay

| Dec 23, 2014

Heads up: The IRS is requiring employers to notify their employees of the Earned Income Credit (EIC) for 2014.

Available to low-income employees, the EIC limits taxes to offset living expenses and Social Security taxes paid. Those who qualify are eligible to claim these credits on their personal income tax returns.

Who Must Be Notified and When?

Employers must notify their workers who were employed during the 2014 calendar year and from whom no income tax was withheld. The one exception is that employers do not have to notify any employee who claimed exemption from withholding on Form W-4, Employee’s Withholding Allowance Certificate.

The IRS encourages employers to notify each employee whose 2014 wages were less than $52,427 that they may be eligible for the EIC.

How Can I Notify Employees?

Employers can serve this notice to qualifying employees through one of the following:

  • Form W-2 with the notice on the back of Copy B,
  • a substitute Form W-2 with the notice on the back of the employee’s copy that is on Copy B,
  • a copy of Form 797 (Possible Federal Tax Refund Due to the Earned Income Credit) or
  • a custom notification with the same wording at the Form 797.

Employers who properly complete and distribute Form W-2s to employees do not need to take further action, as long as the EIC information is properly stated on the back of the employee’s copy.

Those employers not properly fulfilling their W-2 requirements must notify employees about the EIC within one week of the date that any substitute Form W-2s are distributed. All employers not distributing W-2s must supply employees with Notice 797 or a written statement by the date that the Form W-2 would be required to be given to them.

If the employer is not required to distribute a W-2, the employee must be notified by Feb. 9, 2015.

The City of Brotherly Love

The City of Philadelphia was one of the first to pass an ordinance requiring employers to provide each employee living in Philadelphia for whom they withhold taxes, a copy of the City of Philadelphia Department of Revenue’s Earned Income Tax Credit (EITC) Notice. The notice is to be provided by the employer at the same time it provides the employee with his or her Form W-2 (by Jan. 31, 2015).

Additionally, persons or businesses required to provide a non-payroll worker residing in Philadelphia with a federal Form 1099 or comparable form shall provide each such worker with both the federal form and an EITC Notice at the same time. The EITC is a federal benefit for working people who have low to moderate income. The City of Philadelphia Department of Revenue will provide a downloadable EITC notice on its website.

 

About the Author

Robert Barclay

Robert Barclay has been the Tax Research Team Lead at Paycom since 2012, and has been instrumental in such company projects as the development of its Affordable Care Act compliance product, implementation of geolocation services and redesign of Form W-2. He joined Paycom in 2011, bringing more than 20 years of experience with the capital markets consulting practices of Ernst & Young in Memphis, Tenn., and Birmingham, Ala.; and Causey Demgen & Moore in Denver, Colo. A native Oklahoman, Barclay is a graduate of Rhodes College in Memphis, where he played football as linebacker.

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